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Wednesday, July 28, 2010

More measures needed to attract FDI

More measures needed to attract FDI

Wednesday July 28, 2010

KUALA LUMPUR: Foreign direct investment (FDI) into Malaysia for the first quarter of 2010 amounted to RM5.06bil, nearly the same amount captured for the whole of 2009, said the Ministry of International Trade and Industry in a statement recently.

It is be worth noting that the United Nations Conference on Trade and Development (UNCTAD) - in its World Investment Report 2010 - last week said that Malaysia’s FDI had fallen by 81% in 2009, trailing behind the Philippines, Vietnam, Thailand, Indonesia and Singapore.

This is in comparison to FDI inflow into South-East Asia in 1980, when more than 35% came to Malaysia. Vietnam had less than 1% of the total. But this changed in 2008, with Malaysia and Vietnam attracting almost same amount (US$8bil).

Over the last three decades some structural weaknesses have appeared. The main culprit has been dwindling private sector participation, which fell to below 10% of GDP last year, compared to a high of 30% of GDP in the 1980s plus an outflow of capital amounting to RM117bil for 2008 and RM54bil for 1H 2009.

AmResearch Sdn Bhd senior economist Manokaran Mottain said that changes can be seen in the Government’s approach towards FDI - under Prime Minister Datuk Seri Najib Tun Razak’s administration.

“Several key initiatives having been undertaken, including liberalization in key sectors of the economy, like 100% ownership in 27 sub-sectors of services sector; the Economic and Government Transformation Programmes; New Economic Model and 10th Malaysia Plan to spur the economy,” he said.

Manokaran said that in order to achieve average growth of 6% as targeted in the 10th Malaysia Plan for Vision 2020, and to attract more foreign investors, the Government will introduce public-private sector partnerships, as it re-defines its role in business.

For example, Government-Linked-Company’s (GLC) and the private sector are expected to joint venture to re-develop Government land into commercial and residential projects.

“If the Government needs to boost the rate of private investment growth to 12.8% over the 10MP period, we need more affirmative policy measures as follows,” “After achieving the 10th most competitive nation status this year, we expect the Government to further revamp corporate tax policies, to further increase competitiveness with our neighbouring countries,” said Manokaran.

He added that Malaysia eeded a revamp in personal income taxes to promote incentives to work and relocation of talents/ entrepreneurial and technical skills to Malaysia.

Manokaran said that the Government can also consider other forms of incentives such as rebates, tax preferences to encourage relocation of businesses to Malaysia and provide a more competitive business environment, from manufacturing to financial Increase in job opportunities.

Other forms of incentives include further liberalising caps on foreign ownership, and providing grants and incentives to encourage Malaysians to undertake world-class research.

He added that Malaysia needs to review immigration policies to facilitate the entry of “best of brains” in fields of knowledge economy.

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